Four top financial advisers (and Trigger the dog) reveal the best way to invest £100,000

Low interest rates and dismal bond yields – not only in the UK but overseas – have forced many investors to rebalance their portfolios, in the process taking more risk with shares.

Personal Finance Editor JEFF PRESTRIDGE asks four top financial advisers – plus online broker Fund Expert’s tipster Trigger, a Staffordshire bull terrier – how they would invest £100,000 for the long term, according to whether the client is cautious, balanced or adventurous in their attitude towards risk. They also give fund recommendations.

The
most daring of our experts is Darius McDermott of London-based broker
Chelsea Financial Services. This is primarily because he believes
returns from cash in the near term will continue to be ravaged by
inflation while bond prices could fall sharply as quantitative easing –
Government printing of money – is reined in next year.

It explains why he believes half of a ‘cautious’ investor’s £100,000 portfolio should be invested in equity funds with exposure to the UK stock market (Artemis Income), a mix of developed stock markets (Fundsmith Equity) and markets, both developed and emerging (M&G Global Dividend). All three funds have proven records, with Artemis Income and M&G Global Dividend designed to deliver a mix of capital and income growth.

Gavin Haynes of Bristol-based Whitechurch Securities is the most conservative. He proposes only an 18 per cent exposure to equity funds – and that through defensive equity income funds.

He says: ‘With low interest rates dominating next year, dividends will remain important for investors, and companies growing them will be sought after.

‘It explains my three fund choices. Both Artemis Income and Trojan Income invest in UK dividend-producing companies with capital preservation a key priority, while Newton Global Higher Income invests in an internationally diversified portfolio of income stocks.’

As well as equities, all four advisers believe a cautious investor’s portfolio should have exposure to commercial property – offices, shops and industrial units – through a property fund.

This asset is seen as an ideal portfolio diversifier because of its lack of correlation with the performance of either bonds or equities and the fact it can deliver attractive income. It is also a good play on UK economic recovery.

They also believe cautious investors
should look at absolute return funds, which aim to achieve a positive
return – without losing capital – irrespective of movements in the
equity and bond markets.

These
funds typically invest in a mix of assets and use sophisticated
financial instruments to make money when markets fall as well as rise.

Although
bond yields are at rock bottom, all four recommend that at least a
fifth of a cautious investor’s portfolio should be in bond funds.

He
says: ‘Fixed interest is not likely to provide much in the way of
capital gain next year but it offers diversification and income, which
are important ingredients of return in a cautious strategy.’

WHY I'M BACKING BRITAIN

Retired leasing manager Duncan Eyre is putting his faith mainly in the UK.

Duncan, 60, and wife Jayne, 54, a retired hairdresser, hold a portfolio of shares and investment funds through online brokers Bestinvest and Hargreaves Lansdown. Some of the investments are held in Isas.

A keen traveller and season ticket holder at Leeds United Football Club, Duncan has a decent pension from his former employer, General Electric. So he sees his investments and those of his wife as growth vehicles, not portfolios that they currently need an income from.

Their portfolios include UK funds Invesco Perpetual High Income, Artemis Income, Threadneedle UK Equity Income and Unicorn UK Income. They also hold shares in new issues Admiral Insurance and Royal Mail.

Duncan says: ‘I would say 70 per cent of our money is invested in the UK stock market. ‘Overseas I like Europe and invest through Henderson European Situations and Jupiter European. I also have holdings in Asian and emerging markets funds.’

BALANCED INVESTORS

Equity funds should comprise the majority of a ‘balanced’ investor’s portfolio, according to our experts, although exposure to other assets such as bonds and property is also essential to ensure diversification.

All four experts recommend at least 50 per cent exposure to equity funds, with Cockerill being the boldest. He suggests a 76 per cent holding in equities through a mix of UK and international funds – with the emphasis emphatically on ‘quality’ – the quality of the manager running the fund and of the businesses that the fund manager invests in.

He says: ‘As with most things, buying quality tends to pay off in the long term.’ His recommendations include some of the most successful funds of the past decade in their respective sectors – First State Asia Pacific Leaders, Jupiter European and Baillie Gifford Japanese.

Jason Hollands of London-based Bestinvest recommends 52 per cent exposure to equities with the emphasis firmly on funds that invest in dividend friendly stocks – in America, Asia and Europe as well as the UK. Among his selections are Aviva Investors US Equity Income, Newton Asian Income and Standard Life European Equity Income as well as UK funds Artemis Income, Unicorn UK Income and Threadneedle UK Equity Income.

ADVENTUROUS INVESTORS

Our experts believe adventurous long-term investors should be predominantly invested in equity funds that either buy UK shares or international companies.

Hollands believes investors happy to take risks with their portfolio in the hope of long-term rewards should have ‘meaningful’ exposure to smaller company funds – those investing in the UK (Old Mutual UK Smaller Companies) as well as overseas (Threadneedle European Smaller Companies and Legg Mason US Smaller Companies). Haynes and Cockerill also place great emphasis on smaller company funds.

Haynes says: ‘In anticipation of a domestic economic recovery, smaller company shares have experienced significant outperformance over blue-chip companies in the past year. But I believe smaller companies should continue to benefit from the improving economic environment, and increasing merger activity may boost them further as business confidence improves. ‘Aberforth UK Smaller Companies is well positioned to exploit this potential.’

GET YOUR TEETH INTO ASIA FOR SOME TASTY RETURNS

Trigger, a six-year-old Staffordshire bull terrier, has built a considerable reputation among the clients of online broker Fund Expert for his occasional blogs on global stockmarkets.

His views have received more ‘hits’ than those given by Fund Expert’s array of fund gurus. ‘He’s quite a star,’ says Brian Dennehy, managing director.

So, what are Trigger’s thoughts on investing £100,000? This is what he told The Mail on Sunday – via Dennehy.

Taking the lead: Trigger with fund chief Brian Dennehy

First, I would drip-feed into my chosen funds for the long term. I would put the money on deposit now and have a direct debit investing into my choices every month for 36 months.

If markets collapse before the end of that period, as I expect, I could always bring forward investing the balance still on deposit.

Then I would consider what drives outperformance over longer periods. On the one hand higher-yielding shares tend to outperform, so I would want a good equity income fund. Plus young populations with large scope for productivity gains will underpin the most profitable stock markets.

For an equity income fund I’d drip into Artemis Global Income. It has built a strong record since launch and exploits opportunities all over the world – remember there are seven times as many high-yielding shares outside the UK as in it.

The region with a young population and huge upside potential is the ASEAN bloc of Asian countries – such as Cambodia and Malaysia.

Young populations and a continuing trend to urbanisation and industrialisation are strong foundations for long-term growth, unmatched in developed economies, which are old and indebted. Barings Asean Frontiers is my fund choice.

If this all sounds too difficult to you, just leave the £100,000 on deposit for now as opportunities will abound at some point.

FUND JARGON BUSTER

The investment industry's world of abbreviations...Acc: Accumulation - any income generated by the fund like dividends or interest is automatically reinvested.Inc: Income - any income generated is distributed by the fund instead of being reinvested. Dis: Distribution - any income generated is distributed by the fund instead of being reinvested. R: Retail - the fund is aimed at ordinary investors. I/Inst: Institutional - the fund is aimed at corporate investors like pension funds. A, B, M, X etc: Different fund houses use letters for different things. Check with them what they stand for. NT/No trail: Some fund houses use this name on clean funds which carry no commissions for financial advisers, supermarkets or brokers, just the fee levied by the fund manager. But other fund houses use different letters - I, D or Y, for example - so you need to find out for yourself which are clean funds. Gr: Stands for gross. GBP/£: Fund denominated in pounds. EUR: Fund denominated in euros. USD/$: Fund denominated in US dollars. Compiled with online stockbroker The Share Centre